Expectations are centered around the coming Budget. Announcement of finance minister Jaswant Singh that textile and steel would be the priority sectors in the old economy, has corroborated this hope, mill sources in Coimbatore, told f The Financial Express.
There are around 1640 cotton textile mills including 23 composite mills and 790 small spinning mills in Tamil Nadu. Most of the mills are saddled with high cost debts. They are seeking a financial restructuring to cut the interest burden to make a turn around and modernise.
The State Industries Promotion Council of Tamil Nadu (Sipcot) had commissioned the South India Textile Research Association (SITRA) to study the spinning mills in Tamil Nadu during 1994-2000 to identify the causes for their poor performance, measures to be initiated to improve it and to assess the need for modernisation.
SITRA completed the study in September 2002. It was found that smaller mills (with capacity of 3000 to 6000 spindles) had very low operating profits, and higher capacity mills (12,500 to 25,000 spindles), suffered owing to average level of operating profit and high interest cost.
During the six years, interest cost increased steeply by 45 per cent from 5.2 per cent to 7.6 per cent of sales turnover. Interest cost in smaller mills were around Rs 380 per spindle per year, while it was Rs 600-700 in bigger mills ``mainly due to the wide use of old second hand machinery and low loan commitment'', SITRA study says.
In the light of this study, the Southern India Mills Association (SIMA) suggested to the textile ministry the need for a financial restructuring to make the technical restructuring and modernisation feasible.
A detailed study was conducted by Deolitte Haskins and Sells. Recently, it submitted the report and a preliminary concept note to the ministry. Both the reports are kept under wraps. Mills in Coimbatore are expecting a favourable package from the government in the Budget.
Such a restructuring is said to be inevitable for the increased utilisation of the Textile Upgradation Fund (TUF) which is yet to become popular among the mills. Instituted in 1999, with a corpus of Rs 25,000, TUF assistance had been utilised to the extent of over Rs 8000 crore though the estimates were for the utilisation of Rs 15,000 crore in the first three years. The utilisation will pick up only if the spinning mills are relieved of the huge debt burden, informed sources say.
The recent spurt in the sales of textile machinery is no indication of a revival in the spinning sector. Textile machinery sales in the first nine months of the current financial year has gone up four per cent to Rs 832 crore from Rs 797 crore in the similar period last year.
Most of the machinery sales were in the weaving sector and in value addition in spinning mills and there has not been any addition to spindlage, mill sources in Coimbatore said.
Against the total demand of 27-28 million tonnes for spindles in the country there are about 38 million spindles, an excess capacity of 10 million spindles.